Was Ackman Really Needed To Shake Up Canadian Pacific Railway?

By Tim Kildaze
Here’s a brainteaser for you: Because Canadian Pacific Railway Ltd. (CP) has underperformed its rivals for so long, did shareholders really need an activist to show them the light? Now that so many influential shareholders have lined up behind activist Bill Ackman, forcing CP chief executive officer Fred Green to step down and convincing a number of key directors that they had no chance of being re-elected, it’s pretty clear that CP never really had much of a leg to stand on. We’ve all seen the stats during this months-long proxy fight. When Mr. Ackman first bought in, CP’s operating ratio, which measures operating costs as a percentage of revenue, was around 82 per cent. Canadian National Railway Co.’s was 63 per cent. (Lower is better.) As for CP’s E3 plan – Execution Excellence for Efficiency – that involved running longer trains, renegotiating fuel contracts with freightComplete Story »

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When activist investor Bill Ackman first approached Canadian Pacific Railway Ltd.’s management about making major changes to the underperforming railway, including hiring a chief executive who had just retired from its closest rival, they were understandably defensive.
In press release on Feb. 6, 2012, responding to a town hall meeting Ackman’s hedge fund had just held for CP shareholders, the company accused Ackman of having no plan, just criticism.

Reduce operating ratio to mid-60s by midyear 2016
Reduce workforce by 23% by 2016 – about 4,500 positions
Strategic review of western portion of DM&E and D&H
Increase average train length and weight by 30%
Move headquarters to Ogden Yard north of Calgary in early 2014
Around mid-July, just weeks after Hunter Harrison took over as chief executive of Canadian Pacific Railway Ltd., the venerable railroader met with about

Norfolk Southern Corp. is meeting with investors this week to promote its new operating plan as part of an effort to convince them that it’s doing the right thing in shunning a takeover by Canadian Pacific Railway Ltd., according to people familiar with the matter.

Bill Ackman stepped down from the board of Canadian Pacific Railway Ltd. a month after his Pershing Square Capital Management LP sold its entire stake in Canada’s second-largest railroad.
Ackman’s departure is effective immediately, Calgary-based Canadian Pacific said Tuesday in a statement. Former Canadian Imperial Bank of Commerce executive Jill Denham and former Canadian Pacific Chief Financial Officer William Fatt have joined the railroad’s board.

Canadian railway stocks have been a great place to be for investors and not just for the long term. Canadian National Railway Co. is up more than 25% on the year, Canadian Pacific Railway Ltd. has risen about 35%, and both reported strong first-quarter results earlier this week, seemingly clearing the track for more room to roll.
But all is not rosy for the rails. For one thing, there is some uncertainty about revenues from moving commodities such as grain, coal and oil, tougher comparisons to previous quarters and lofty valuations to consider.

Canadian Pacific Railway Ltd. overcame wintry weather and a brief strike in the first quarter to report the best operating ratio in company history — and CEO Hunter Harrison says there’s still plenty of room for improvement.
CP’s operating ratio — a key measure of efficiency, in which a lower number is better — fell nearly nine percentage points to 63.2 per cent, a number Harrison called “staggering.”
“I don’t think any railroad has ever achieved an operating ratio of that level in the first quarter,” Harrison said on a conference call Tuesday.

By Takeover Analyst:In previous articles, I have expressed my bullish outlook on the rail industry. In this one, I argued, frankly, that "railroad stocks are heading skyward". Satiating my interest in railroads with my background in proxy fights, it is interesting to watch the battle going on at Canadian Pacific (CP).

Canadian Pacific Railway Ltd. revised its offer once again for Norfolk Southern Corp., offering its takeover target’s shareholders new guarantees to sweeten its offer.
The new revised terms Wednesday include a so-called contingent-value right, which will have a maximum payout of US$25, for an additional value of as much as US$3.4 billion, the company said. The rest of the offer was similar to last week’s revised bid of US$32.86 in cash and 0.451 shares in the combined company, which valued Norfolk at about US$27 billion.

TORONTO — Highfields Capital, a U.S. hedge fund agitating for drastic change at iconic Canadian coffee-and-doughnut chain Tim Hortons Inc, is set for an uphill battle convincing some long-term institutional investors of the merits of its case.
The Boston-based activist investor, which owns a 1.5% stake in Tim Hortons, wants the chain to boost returns aggressively via debt-funded share buybacks, while also scaling back on its U.S. expansion plans.

By Streetwise Blog:
By Tim Kiladze
It’s one thing for an activist shareholder to buy a stake in a company, giving the shares an initial bump, and another to actually implement real changes to enhance shareholder value.